* Dollar seen under pressure if Fed decision disappoints
* Japanese importers' bids help lift dollar
* Aussie hits 29-year peak on rising commodity prices
(Updates prices, adds quotes, graphic, changes byline,
dateline, previous TOKYO)
By Julie Haviv
New York, April 25 (Reuters) - The dollar fell further
against the euro on Monday and could test its all-time low
against a basket of currencies this week if the U.S. Federal
Reserve shows no sign of changing its easy monetary policy.
With many markets closed for Easter and no major U.S.
economic reports on the calendar, the April 26-27 Federal Open
Market Committee meeting will be the key event risk this week
as traders try to gauge the direction of U.S. policy.
Market participants will look to the post-meeting news
conference by Fed Chairman Ben Bernanke on Wednesday -- the
first regularly scheduled news briefing by a Fed chief in the
U.S. central bank's 97-year history -- to see how the Fed plans
to exit from its ultra-loose policy.
"The bond and currency market reaction is still an unknown
and a significant risk," said Camilla Sutton, chief currency
strategist at Scotia Capital in Toronto.
The dollar index, which measures the currency's value
against six major currencies, traded flat at 73.972 <.DXY> but
many trader says it could test a three-year low of 73.735 hit
last week. A break of that could open the way for a test of the
record low of 70.698 hit in 2008.
Nevertheless, currency speculators pared bets against the
U.S. dollar for a fourth straight week, according to data from
the Commodity Futures Trading Commission released Friday. For
details click on [].
The Fed is expected to confirm its $600 billion asset
purchase program known as QE2 will end as scheduled in June.
The program is a bane for the dollar since it is tantamount to
printing money, so an indication that it may end it earlier
would be a positive for the beaten-down currency.
Once QE2 concludes there will be some upward pressure on
yields; however, with U.S. monetary policy still notably weak,
an extended dollar rally is not likely, Sutton said.
"This is the medium-term risk; the near-term risk lies in
the wording of the statement, any shift in tone, the press
conference itself and the FOMC's updated set of forecasts," she
said.
In early morning New York trade the euro <EUR=> was up 0.3
percent at $1.4604, not far from a 16-month high of $1.4649 hit
last week.
With interest rate differentials a prime driver of
currencies, the dollar will also benefit if the Fed turns more
hawkish in light of growing inflationary pressures.
If Bernanke indicates that the Fed's accommodative policy
may continue for the foreseeable future, the dollar will likely
see selling pushing the EUR/USD towards the key $1.5000 figure,
strategists said.
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For graphic on Fed funds rate hike expectations:
http://r.reuters.com/xyz48r
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The Australian dollar, meanwhile, rose to a fresh 29-year
high of $1.0777 <AUD=D4> as gold and commodities prices
continue to rise, before slipping back. It last traded at
$1.0734.
Gold hit a lifetime high <XAU=> well above $1,500 an ounce
while silver surged 4 percent on the U.S. futures market.
A combination of upbeat global growth, signs of weaker U.S.
growth and the prospect of dovish Fed policy is expected to
support fund flows to higher-yielding currencies such as the
euro and the Australian dollar from the U.S. unit, traders
said.
"I doubt there's much dollar carry trade out there but when
market players are eager to take risk, they tend to look to
interest rate gaps on speculation that the dollar could be used
as a funding currency," said Kimihiko Tomita, the head of
foreign exchange at State Street Capital Markets.
Against the yen, the dollar ticked up 0.1 percent to about
81.92 yen <JPY=>, helped by expectations of Japanese investor
buying, including by asset management firms which tend to
launch new investment trusts at the end of the month.
USDJPY has weakened from roughly 85.50 since early April
with recent support seen just below 82, Scotia's Sutton said.
Some analysts say worries about rising U.S. debt and
political bickering in Washington over how to tackle the budget
deficit are also undermining the dollar, making it easier for
speculators to sell the currency, although there is no evidence
that foreign investors are dumping U.S. assets.
(Additional reporting by Gertrude Chavez Dreyfuss in New York
and Hideyuki Sano in Tokyo; Editing by James Dalgleish)
